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REGIONAL UTILIZATION of REUSABLE PALLETS by the GROCERY and RELATED PRODUCTS INDUSTBY By

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REGIONAL UTILIZATION of REUSABLE PALLETS by the GROCERY and RELATED PRODUCTS INDUSTBY By REGIONAL UTILIZATION OF REUSABLE PALLETS BY THE GROCERY AND RELATED PRODUCTS INDUSTBY by Robert Bruce Anderson Dissertation submitted to the Faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY in Forestry and Forest Products APPROVED: MP Raräd Wisdom —** ‘¤g6m2i‘e„;6;e6*‘—Y"- — JE§xiSF% Blacksburg, Virginia to my parents. To my mother whose unfailing confidence and encouragement has been a keystone throughout my educational career; all I can say is I am extremely fortunate to have been a part of your life. To my late father, who this dissertation is dedicated to; all I can hope is that all the faith he had in me is exemplified in this work. iii In Memory of my Father iv TABLE OF CONTENTS ACKNOWLEDGEMENTS....................................................ii TABLE OF CONTENTS....................................................v LIST OF TABLES.....................................................vii LIST OF FIGURES...................................................viii CHAPTER I INTRODUCTION...........................................1 The Problem.....................................................3 Objectives......................................................6 Organization of Dissertation....................................7 CHAPTER II THE PALLET INDUSTRY....................................8 Industry Development............................................8 Product Standardization........................................10 Grocery Pallet Consumption.....................................12 CHAPTER III THE GROCERY INDUSTRY..................................16 Structure of the Industry......................................19 Relationship Between Retail Stores and Distribution Centers....23 Pallet Standardization in Grocery Distribution.................26 Pallet Use in Grocery Distribution.............................29 CHAPTER IV DISTRIBUTION MODELS...................................37 Review of Literature...........................................37 Plant Location Models..........................................39 Spatial Equilibrium Models.....................................N2 Econometric Models.............................................M7 Simulation Models..............................................5M Applicability of Existing Models...............................56 CHAPTER V GROCERY DISTRIBUTION MODEL............................65 Spatial Aspects of Grocery Production and Distribution.........65 Grocery Manufacturers.....................................67 Grocery Distribution Centers..............................70 Retail Stores.............................................72 Pallet Manufacturers......................................73 Pallet Flows in the Model......................................76 Grocery Distribution Center...............................77 Warehouse.................................................79 Pallet Outflow............................................81 - Retail Store.........................................81 Grocery Manufacturer.................................83 Pallet Repair........................................83 Pallet Discard.......................................86 Pallet Inflow........................Q....................88 Retail Store.........................................88 Grocery Manufacturer.................................91 Pallet Repair........................................91 Pallet Manufacturer..................................92 Demand and Supply Aspects of the Model.........................9U Final Product Market Level................................95 Materials Handling Elements of Final Product Supply.......99 Grocery Manufacturers...............................101 Grocery Distribution Centers........................102 Demand for Materials Handling Services..............10ü Pallet Market Level......................................108 Stock Adjustment Model For Grocery Distribution...............113 The Complete Model............................................121 Grocery and Related Products.............................12ü Pallets..................................................12ü CHAPTER VI PALLET CONSUMPTION BY THE GROCERY INDUSTRY...........125 Data Base.....................................................125 Estimation of Pallet Consumption..............................1üO Conversion Factors............................................lüü Regional Pallet Consumption...................................1ü9 CHAPTER VII EFFECT OF GROCERY PALLET USE ON HARDWOOD RESOURCE....156 Wood Raw Material - New Pallets...............................157 Wood Raw Material - Pallet Repair.............................162 Industry Trends in Wood Use...................................168 Continued Pallet Use.....................................168 Continued Preference for Hardwood Species................169 Increasing Standardization of Pallets....................170 Captive Pallet Operations................................173 CHAPTER VIII SUMMARY AND CONCLUSIONS..............................175 Summary.......................................................175 Conclusions...................................................183 Future Research...............................................186 LITERATURE REFERENCES..............................................189 APPENDIX A.........................................................197 APPENDIX B.........................................................198 APPENDIX C.........................................................200 Web VITA...............................................................205 ABSTRACT........................................................... -Vi- LIST OF TABLES 1*2% Ess 1 Percent of tons of product movement palletizable, by shipper group and class, for all geographic regions..........13 2 Regions defined in the 1987 Marketing Guidebook................128 3 Food Store Sales in 1986, by Region and Market Area............130 N Market Area: Charleston/Roanoke...............................133 5 Retail Sales (X) Attributed to Distribution Centers, 1986......135 6 Retail Sales ($000) Attributed to Distribution Centers, 1986...137 7 Pallet Production and Grocery Store Sales......................1ü2 8 Regional Sales, as a Percent of Total Sales in 1986............151 9 Estimated Regional Pallet Consumption in 1986..................15N 10 Estimated Wood Raw Material Consumption in Grocery Pallet Production, 1986...............................................160 11 Estimated Wood Raw Material Consumption in Grocery Pallet Repair, 1986....................................167 vii LIST OF FIGURES Figure Qggg 1 Spatial Aspects of Grocery Distribution........'................68 2 Flow of Pallets in a Grocery Distribution System...............78 3 Pallet Outflow from a Grocery Distribution Center..............82 U Pallet Inflows to a Grocery Distribution Center................89 5 Demand and Supply Linkage Between Market Levels................96 6 Comparison of Bureau of the Census and Marketing Guidebook Regions.......................................................127 viii CHAPTER I INTRODUCTION The U.S. pallet industry depends greatly on the future availability of timber resources, since over 90 percent of its products are made from wood. Since 1960, annual pallet production has quadrupled, and the industry's use of hardwood lumber has increased from 1N percent to more than 50 percent of total hardwood lumber production. By 1976, 3.2 billion board feet of hardwood lumber were consumed by the pallet industry out of a total production of 6.5 billion board feet (USDA Forest Service 1982). The increased demand for pallets increases the volume of wood consumed by the industry. Between 1960 and 1979, wood use by the pallet industry has increased an average of 7 percent per year. Present hardwood consumption for pallet products includes raw material inputs such as cants, short bolts, and tree—length logs as well as hardwood lumber. Thus, the total hardwood input to pallet production is greater than just 50 percent of hardwood lumber production. Growth in pallet usage is derived from two sources: increases in industrial production and increases in movement of domestic products on pallets. Increases in movement on pallets results from manufacturers and distributors converting to pallet handling systems from other material handling systems. Increases in industrial production results in an increase in pallets needed for systems already using pallets. 1 2 From 1950 to 1960, average growth in pallet production per year was Ü2.1 million units, of which 3.8 million was due to growth in industrial production and 38.3 million was due to palletization (Wallin and Luppold 1983). For the period 1961 to 1983, average growth in annual production attributed to industrial growth was 7.6 million while that attributed to palletization was 152 million out of a total of 160 million. The grocery and related products industry is a potential major growth area for pallet usage over the next decade. This industry is already the largest market for industrial packaging, which includes pallets, boxes, and containers, accounting for almost 37 percent of total packaging in 1980. Its projected growth in manufacturers' output is expected to exceed 2.8 percent per year between 1980 and 1995 (Walsh 1981). The grocery and related products industry is unique in two ways. First, a majority of the products handled by the industry's distribution system are already handled on
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